Aditya Birla Group foray into the cable and wires (C&W) business through Ultratech, with an investment outlay of Rs 1,800 crore, is weighing on the share prices of the leading players in the industry. Shares of Polycab India, KEI Industries, RR Kabel and Havells India are down anywhere between 7-15 percent in early trade.
Some experts believe the development could have a longer term impact too, as Ultratech may be able to disrupt the sector more easily than the paints business, and leading players in the segment are trading a very expensive multiples.
The C&W business has established brands like Havells India, Polycab India, Finolex Cables, RR Kabel and KEI Industries, among others, that are dominating the segment with more than 50% share of the organized sector, as per a MOSL note based on FY23 numbers. Ultratech's disruption could also trigger a shift away from the unorganized sector, thus hurting the smaller players in the C&W business. Already, industry estimates project branded players to have nearly 74% of the cable and wires industry's share as against 61% in FY14, and which is expected to further improve to 80% by FY27. Statista's projections state the Indian cables and wires industry to have a size of around $21.22 billion as of 2025, and is projected to reach $32.85 billion by 2030 at a CAGR of 9.14%.
"The impact on C&W players will be bigger as unlike paints where the brand plays a bigger role in C&W taking market share for Ultratech will be easier. Most C&W companies trade at obnoxious valuations of 50-60X PE. Sweating here could be severe and much bigger than in Paints," Sandip Sabharwal of asksandipsabharwal.com posted on his social media handle on February 26. Cables and wires being a commodity business will mean Ultratech's entry will hurt companies more, he added.
In case UltraTech chooses to be aggressive with pricing in the C&W foray, in order to corner greater market share, the move will negative impact the margins for the business, hurting the existing players. The margins for existing C&W players will definitely be squeezed if Ultratech chooses to tap into the dealer network of its cement suppliers to push for sale of cable and wires too. The sector has strong brands with a diversified portfolio, however, much of the margin hit will the companies be willing to tolerate remains to be seen.
Aditya Kondawar of Complete Circle said Ultratech may be aspiring to be a 'comprehensive Building Solutions Provider' with this foray. The Aditya Birla Group already has an established group presence in the copper and aluminum business in the form of Hindalco.
UltraTech plans to build a cable and wires plant in Gujarat's Bharuch by December 2026, and target demand across all segments - be it residential, commercial, or industrial. The foray comes at a time of an expanding infrastructure boom across India. The cement maker has already factored in a capex spend of Rs 8,000-9,000 crore on its balance sheet as of Q3FY25, and the allocation of Rs 1,800 crore for C&W does not seem too steep for the company. However, it remains unanswered if this outlay is coming at the cost of any of the existing cement capacity expansion plans.
A CNBC-TV18 analysis showed that the foray offers a revenue potential of Rs 7,000 crore with margins at around 10-12%. While it opens a new revenue stream for Ultratech, the capital allocation may be questioned by some analysts. Analysts will closely watch for any signs of margin impact on existing players and if the entry triggers any kind of pricing disruption or pressure on valuations.
Over half the revenue for the C&W segment comes from the domestic end market, where fundamentals remain strong in power, infrastructure, and real estate construction.
Motilal Oswal's note from April 2024 had projected India's cables and wires industry to be worth around Rs 1.8 lakh crore in FY23. The industry offers 'huge growth potential', said MOSL with an estimated CAGR of 10% over next few years, as the infrastructure and real estate boom unfolds in India. UltraTech’s C&W foray is more of a strategic leap to tap into the entire value chain of construction and infrastructure, and aims to leverage and complement the group's offering in cement and paint.
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